ISO 20022 & Smart Instant Payments

EPISODE SUMMARY
In this episode of Wrestling Payments, host Joseph Casil talks with Steve Wasserman from Photon Commerce about the growing importance of ISO 20022 and its impact on the global payments landscape. Wasserman delves into how this emerging standard is transforming instant payments and financial messaging by providing a more structured and data-rich approach to payment transactions.

Wasserman explains the benefits of ISO 20022, including its ability to support more detailed payment information and enable faster, automated processing. He highlights how this standard is being adopted across payment systems worldwide, such as FedNow and RTP, and how it improves interoperability between financial institutions, paving the way for global payments integration.

The conversation also covers the future of instant payments, the role of AI in fraud detection and compliance, and how businesses can leverage ISO 20022 to streamline their processes. Wasserman encourages payment professionals to embrace the standard to stay competitive in the evolving financial landscape.

GUEST-AT-A-GLANCE
Steve Wasserman
Technology Architect
Photon Commerce
LinkedIn  

Noteworthy: Specializes in ISO 20022 and instant payment innovations, with years of experience in fintech.

KEY INSIGHT
ISO 20022 is Revolutionizing Global Payments

ISO 20022 is transforming how payment systems operate globally. Steve Wasserman explains that this emerging standard allows for a more structured and data-rich messaging format, which enables better automation and transparency in financial transactions. ISO 20022 is being adopted by systems like FedNow, RTP, and SWIFT, helping institutions streamline operations and enhance interoperability. The added benefit of detailed remittance information means businesses can automate straight-through processing, reducing errors and manual intervention. 

Request for Payment Solves Key Payment Issues

One of the key features of ISO 20022 is its support for "Request for Payment" functionality. Wasserman explains that this capability allows businesses to request payment from a payer without needing to rely on traditional debit mechanisms. The payer can schedule or approve payments, providing more control and reducing the risk of failed transactions. This innovation is especially useful for businesses that need flexibility in payment timing, making it easier to meet deadlines without incurring late fees or dealing with business interruptions. 

AI and ISO 20022 Enhance Fraud Detection

Steve Wasserman highlights how ISO 20022’s structured data format works seamlessly with AI to boost real-time fraud detection and compliance capabilities. Because ISO 20022 includes rich, detailed data fields, AI tools can analyze transactions more effectively, identifying patterns that signal fraudulent activity. This integration of AI helps financial institutions respond faster to potential threats while enhancing their ability to comply with regulatory requirements. Wasserman underscores that as the financial ecosystem grows more complex, the combination of AI and ISO 20022 will become increasingly important for maintaining secure, efficient payment systems.

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Transcript

NEACH - Wrestling Payments - Steve Wasserman ISO 20022 & Smart Instant Payments 

Episode 2.19

Joseph Casali: [00:00:00] Hello and welcome to an excellent episode of Wrestling Payments. This is a topic that I love. It's the number one downloaded episode on our website. When we talked about ISO, we're back again to talk about ISO with an expert. Steve, would you like to introduce yourself?

Steve Wasserman: Well, hi, I'm Steve Wasserman. Uh, I've been in payments now for, for many years, uh, involved from a couple of different aspects. Um, uh, had been involved from the ERP and interfacing corporates in their banks for many years in one of my startup companies that was a consulting firm, but, uh, dealt with a lot of ERP companies.

Uh, and then another space was in the walk in bill payment space, which is another startup that I had. Both of those are, ended up being Inc. 500, uh, uh, companies that you might see behind me. Um, then I got into payments and learning more about the modern versions of payments, uh, uh, when I took a course from MIT on future, [00:01:00] uh, commerce and fintech.

And that's been a while back. I joined the FASTA Payments Council, been involved in many different work groups on the board of directors now. So, um, met many people like Joe and others, uh, uh, through a number of different things that I've been involved in, including the, uh, FASTA Payments Professional Program. Uh, that we've both been involved in.

Joseph: And, and I knew Steve from being in the room working on those projects, but could you back up for a second on the wall? Can, can you hit that again? What are we looking at?

Steve: So the 1st company was a, uh, consulting firm that we, uh, partnered and did a lot of work with 1 of the mid tier companies. Uh, and we ended up selling that company to that, uh, um, uh, to that company. Uh, when we would like the number one third party provider to do extensions to their ERP and do [00:02:00] customizations.

Uh, so, uh, and a lot of it had to do with doing payments for the corporates, uh, that were their corporate clients. So, uh, that was one of them. Uh, that was an AIM 500. We grew that company pretty quickly in the first several years. While we had that business though. Uh, we had this company was called in person payments when we started it later on, changed its name to soft gate systems, got acquired by a company called to networks to networks, ended up selling the company to pay pal for 300, 000, 000.

Uh, but I had gotten out of it before the acquisition by, uh, T. O. And, uh, uh, But I, I did well in both of those, uh,

Joseph: very nice.

Steve: you know, it's, it's been a great journey. Learned a lot about business to business payments as well as consumer payments because we had to deal with a lot of bill pay and doing real time top ups, real time top ups, uh, you know, doing, uh, prepaid products that within seconds, uh, the money that you would give cash for, you had [00:03:00] access to on a card to use it anywhere the card was accepted.

We were doing that over 20 years ago. Yeah.

Joseph: Wow. Well, it was very ahead of its time, I think. Right.

Steve: It was, I like to think that some of the things we did, uh, in that industry of, um, uh, basically alternative financial services, uh, uh, turned into that was before the term fintech existed because it was in the early 90s. We started pre internet and pre windows. Uh, we had dial up in DOS, but obviously we, you know, uh, we adapted over time and, um, uh, you know, took on the internet, uh, and, uh, uh, took on a lot of partners as we grew through the internet and enabled us to take on a lot of partners that we developed APIs interface with them.

So it was a great experience.

Joseph: Wow. Then, and APIs were new back then, right? That

Steve: I know. And, you know, even XML was kind of, you know, new at the time. So we were getting involved in all the, uh, things that [00:04:00] structured and started to establish some standards for, of which we're going to talk about one of the merging standards. We, uh, are very relevant, uh, through FASTA payments, uh, for ISO 2022.

Joseph: was an excellent segue. Uh, so let's, let's talk about that for a minute. And I have to tell you, I'm, uh, I have a pet peeve. My pet peeve is that whenever someone talks about ISO 200, I call it 20022. Uh, people say it, uh, 20022. Um. But I, I have a pet peeve. My pet peeve is the minute you're in a session or someone starts to talk about it, they go over the cliffs really fast and they're talking about formats and standards and the data elements.

And, uh, Steve mentioned, Uh, a book. Uh, so this, and we were gonna talk about this later, but Smart Instant Payments, there's a chapter in here, written by Steve, that talks about ISO, uh, 20022, and not one format. [00:05:00] Is, is, uh, Diagrammed, uh, you know, explained. It really gives you a great oversight of ISO, uh, or overview of ISO 20022.

Um, I know we were going to talk about this later. Do you, but you, do you want to just mention the book and we can dig down deeper later? Yeah,

Steve: my copy right here too. We all got our copies. And this is if you're in, you want to do things with payments, especially instant payments. This is a great primer and as well, but goes beyond primer. So it can address multiple levels. What we'd love is for everybody in the industry to be able to be familiar with this as well as, um, the next generation of subject matter experts, people in business schools and so forth.

They're the ones who could really benefit from, from getting this, this basically foundation, understanding instant payments. But we also talk about in the book, you know, where, how do we get there? Uh, there's a whole history chapter as well, and I had been the editor across all the chapters, uh, [00:06:00] and wrote some, some of the chapters as well, one of which was the ISO chapter that I, uh, had some extra details on.

That's what he's on. So great book. Make sure you can get it on Amazon.

Joseph: mm hmm. And you can get it from us. We could, we, uh, we were so interested. We bought a bunch. Uh, we're selling them at a discount. Uh, it, it's so funny, uh, It's the first time I've looked at a book cover and said hey, I know him. Hey, I know her. Hey, I know him you know,

Steve: That's a good point. It wasn't just me. I was together with, uh, I think 6 or 8 other, uh, uh, industry experts, uh, that we met through the faster payments council, uh, ones in, uh, uh, 1 originally was from the clearinghouse and, uh, uh, now it's in, in, in, in another location. Uh, but, uh, you had people from the Federal Reserve.

Um, and they had, uh, you know, several others, uh, uh, that we, um, met through the FASTA Payments Council, including Reed, Lieutenant, who's the Executive Director.

Joseph: Excellent. Excellent. All right, so we'll [00:07:00] talk about that a little bit more later Let's let's uh talk, you know, I've been hearing for a few years now. Hey, so 2020 it's gonna change everything Can you you know talk a little bit about what why it's getting so much press

Steve: Well, it's really because it's an emerging standard globally, not just in the U. S. I mean, in the U. S. it's relatively new, but outside the U. S. it's been around for for decades. Um, and, uh, uh, but here in the U. S. we're probably more familiar about. How was initially being used at, in, uh, FedNow and RTP, uh, those leverage that standard for all the messaging.

Um, but, you know, we have coming up in 2025, uh, uh, the clearing houses, uh, CHIPS and the Federal Reserve FedWire, they are adopting ISO 2022, SWIFT has adopted it. [00:08:00] Uh, and, um, you know, in the UK, like things like chaps. So, and instant payments across the world, uh, uh, and other payment platforms, uh, as well have adopted ISO 2022 because it's a language of financial. Transaction terminology, and it has a really great dictionary of terms that, uh, you use over and over again to describe some of the things in a very structured way with self describing XML format, uh, so that it's very easy to ingest and, and, uh, and basically understand, uh, machine learning, understand, uh, Uh, very quickly and be able to use for automation and other, you know, many different purposes.

Uh, you know, the, um, the, the other, some other functionality of it is that, um, Because it has a lot of rich data, uh, and has, you know, certain types of, uh, information that we don't see in other payment [00:09:00] platforms. For instance, like, the different types of parties that it can talk about, you know, most of them just talk about the payer and the payee, they term those the creditor and the debtor.

Those are the parties, uh, that are sending or receiving the money. But there's also an ultimate, uh, creditor and debtor that it could be, you know, The party that the transaction is being done on behalf of, um, who's sending the money or the person that is receiving the money on behalf of some other party.

So it could be third parties involved there. And even beyond that, there could even be when they get to like B2B payments, you have invoicers and invoicees, uh, or even, you know, bill pay in general. Those could be other parties, uh, that not necessarily the same as the creditor adapter or even the ultimate creditor adapter.

So that's a flexibility you don't have in any of the other, uh, message standards. Uh, the. Um, so that that's that's a key thing, uh, for the, you know, pay your payee and all the associated, [00:10:00] uh, uh, people to them. But then you have the, the FI and the information about the FI, uh, the sending receiving FI, but there could also be the funding.

Uh, sending and receiving, uh, FI involved in, in, in, but that information is available in the, in the message structure, uh, for you to be able to describe. So it's very comprehensive messaging that you get with lots of information. Uh, The, some of the other types of information involved, like structured remittance.

So, you know, everybody says, well, it's great that you can send me electronic payment instantly, but what'd you pay for, uh, and that remittance detail, uh, you can, you could do it either structured or unstructured, but structured is much better because the receiver of the payment, especially if it's a business is able to then automate that for straight through processing.

Uh, and that's an important capability. Uh, there are other capabilities in the, in the standard that, um, provide additional data. [00:11:00] Um, such as, um, oh, request for payment,

Joseph: Hmm.

Steve: is a transaction that our current, you know, we, we do request for payment outside of the, the payment network right now, but here it allows you to do it inside the payment network and integrate it with the, uh, turning it around and take it in a request for payment and turn it into a push payment.

And in the U S.

Joseph: there for a second? So, um, just, just if someone's trying to catch up, uh, payments are sent right now using, you know, let's say instant payments for a minute. Instant payments are credits. The, in this, in the U. S. FedNow or RTP, both of those send a payment. So you have the players that you talked about, uh, and they can send a credit.

There is no debit. There is no credit. Um, there is no someone sending a debit to take the money out of the, uh, account. So how does the request for payment solve that?

Steve: the [00:12:00] request for payment is a substitute for the debit. So instead of the funds being pulled from the account that's going to be debited, um, you request The payment and that person approves or that personal party approves the transaction and that then triggers, uh, sending the payment or scheduling the payment because it doesn't have to be, you know, the, the request for payment say, when's it do.

So now I could schedule it to be up to the last 2nd. It's due. Uh, and not really plan for, well, let's see. Today's the end of the day of Friday. If I don't get it in in time and Monday's a holiday, Oh, I got a plan for the funds to get there Tuesday. Well, if I do instant payments, no, it'll get there in less than 30 seconds.

Regardless of the day of the week or the holiday or anything like that.

Joseph: And, and if I was going to argue with you, I was, I was going to say, well, the U S already has, you know, EDI, right? EDI is a standard. Why, why, [00:13:00] why is, why, why do we have to change to this ISO? Yeah.

Steve: I'm glad you bring up EDI. I mean, I've used EDI in, in, uh, many, you know, uh, electronic, uh, transaction exchanges for businesses. Businesses have been doing that for decades. Um, EDI is, is, is a great standard. Um. It's implementation, though, um, had lots of different dialects, uh, and different ways to use it. So, and it wasn't as, it wasn't self describing, so it's not as easily digestible as the XML format of ISO 2022.

Uh, and you had to worry about the version, and there are things called loops, and a lot of things that, uh, could vary. Uh, and you had to use translators. Uh, and mappers for EDI, uh, additional software to make it trans translate it from to or from the version that you would understand. And many [00:14:00] times it was translating.

Sometimes it would translate it to or from even just a CSV file. Um, that some of the, uh, the businesses does basically have the generate or receive a CSV file because the systems couldn't necessarily ingest or create the ISO, you know, complicated ISO format that required.

Joseph: That, that touches on two really, you know, I try to tie things people are wrestling with in payments as much as possible. That really ties to, uh, the, the, you mentioned earlier, the straight through processing and the XML. For folks who, who don't know XML, uh, websites are built in HTML. And if you looked at a heading, for example, on a website, It's surrounded by little brackets with an H, H1 maybe, Heading 1, and the end of it is a slash, Heading 1, so it tells you, hey, the thing between these two symbols [00:15:00] is the heading.

XML does the same thing, so it'll say, uh, debtor, and it'll tell you, debtor, here's the person's name, end of the debtor. It's readable. I remember, you know, you probably remember too, uh, back maybe around 2010, the Fed went on this road trip where they sold a product called Fed EDI. And what it literally did in a system where they were trying to put EDI in an ACH record, this system took it out of the ACH record, printed it out onto a form and sent it to the person.

So, As far as straight through processing, it, it totally bypassed straight through processing. I mean, the intent is you get the file, your computer says, Oh, thank you very much. Who paid? Oh, their bills paid. Great. Their bills paid. Uh, so that, you know, you don't have all those intermediary steps someplace.

Someone can make a mistake, right?[00:16:00] 

Steve: Yeah, you know, and so the, uh, the thing is to understand what you have businesses that need to originate payments or receive payments, uh, you know, remittance information and all that. They, they may already be doing that using EDI. And there's a lot of B2B services that will be able to. Leverage using the standard of ISO.

To either create the message that they came from, from EDI to ISO or from ISO to EDI, so that the, the existing CUS business customer can already interface now ISO 2 0 2 behind the scenes using their existing technology, which might be EDI or even a spreadsheet as I said, um, that they have integrated already into their, into their systems to either create or receive and process for straight through processing.

Joseph: Yeah. Um, let's, uh, let's talk a little bit about why this is such a challenge and You know, I, I, I was on the Faster Payments [00:17:00] Council with you. I, I learned of the other, you know, the other geographies that were already doing this, already using ISO 20022 to do it. It was all new for me back in then. This is around 2015.

And, you know, all of a sudden, RTP said, Hey, we're going to offer a faster payment solution. The Fed said, you know what? We're After this research and after what we've heard from the industry, we're going to do a faster payment system. At the same time, using ISO 20022, at the same time, SWIFT was sort of going through their own evolution and they decided the same thing.

They were, they were going to, and, and this word, I, I, I hear it a lot, um, from a definition. It means just make things work together. It's orchestration, right? Make payment systems work better together.

Steve: Well, when everybody is using the ISO standard. At least between the financial institutions and eventually corporates might be able to adopt it [00:18:00] as well, uh, or adopt it, uh, or at least be able to integrate to and from it. Uh, as I described the, uh, when that happens now, global interoperability, uh, is more capable.

Now, there are different implementations. Of using the standard, even, you know, fed now and RTP have some minor differences, but all in all, those are minor compared to the varied widely varied differences. You might have seen back in the days of using the eye. Um, and, uh, you know, not was always a very good standard.

There weren't really many ways to change it around though. I have run into implementations where they said, well, in this, in this, I then identification field. Uh, we want this value, uh, so with the different implementations, uh, you know, that get interpreted, uh, on, on the use of specific fields, but it was a very structured, but limited format, you know, unless you got to the addenda, that was all free form, [00:19:00] but you could even, uh, you know, um, you know, including that addenda, uh, NACHA has talked about being able to even include, uh, an ISO 20022, uh, broken up into 80 character chunks, Uh, you know, in the addenda, um, you know, to carry the information like for remittance, et cetera.

Joseph: I do know NACHA jumped on that. I do also know that they are revisiting it right now. So, in a world where you have two, uh, new payment systems, RTP and FedNow, you have, uh, chips that has converted to ISO 20022, and FedNow is right now in the middle of a conversion from ISO 20022. I think it was a proprietary system over an ISO 20022 standard.

As a payment professional, do I have to jump on board? What do I have to know about this ISO? Because, you know, what if I say it's new, I [00:20:00] don't want to know anything more. Would you disagree with that and why?

Steve: Well, you need to learn more about it because of these other capabilities. It enables that allow you to now. Uh, planned ahead for the future initially, you want to just be compatible and send and receive basic transactions, but when you start using some of the extensible data that it has. Uh, that, you know, go beyond what the current, um, uh, you know, standards that are being used like nacho, um, you know, I saw 8583 has a level 3 data, but how many people really use it.

You know, some do.

Joseph: the audience, what is ISO 8583?

Steve: 8583 is the messaging standard used for all the card transactions in the U. S. and, and actually, you know, uh, globally. Uh, so we want this to be able to use for all the instant and, um, uh, payments [00:21:00] globally. Create interoperability, you know, between them. So that that's what I so, you know, kind of enables.

Joseph: Interestingly, um, and I don't, I really don't know much about wire, but if I understood wire, the data in wire was kinda generally in a place on a wire transfer, whereas if you've replacing that with, you know, uh, ISO 20 or 22, you're always going to know what the company name is. You're always going to know who the sender is because.

What was the standard for wire? Was it something empty?

Steve: Well, empty. I know that, you know, Swift had empty and they're empty to ISO 202 conversions, and then going back in the other way in the other direction to from ISO to the back to empty depending. So, you want to be able to at least. Support interfacing to and from what you readily, [00:22:00] readily can handle now, but also then start to learn more about ISO because there are other things you can do with it that you couldn't do with the MT or you couldn't do with ACH or you couldn't do with, uh, you know, other, other card products as well.

Joseph: Super interesting. Um, what do you, what do you think the biggest obstacles to adoption? Cause you know, on the, from the rumor mill or from a little bird told me this wire transfer, um, Implementation is is there's a little bit of struggling going on in the industry. Don't share anything you you, you know, you shouldn't share.

But, uh, there's there's a lot of folks behind. And as far as we know, there is a deadline. That deadline is March of next year, the feds flipping a switch. And if you can't, if your system can't send an ISO 20 or 22 wire, you're not sending wires.[00:23:00] 

Steve: Well, you may end up sending it through a FinTech that already provides you the conversion.

Joseph: Mm hmm.

Steve: Uh, so, you know, and then. You, this is why you need to learn about ISO to say, okay, well, that'll be my stop gap measure, but. You know, figure out from how iso is going to allow you to do more than just, you know, send the wire.

Well, I want to send the wire along with if it's a business of business along the remit was detail. I want to, um, communicate. You know, these additional parties involved that I couldn't do possibly before. Uh, so those are the things you wanna learn. Um, and there's a lot of things about the structure of ISO 2 0 2 2 that lend itself more for automated processing.

So you can enable automated processing for you and your treasury clients and other, and other, you know. Clients that that 1 of leverage that information, uh, and some of the information that includes, for [00:24:00] instance, uh, uh, that additional information can help you with your client compliance requirements. It can help with fraud detection and mitigation.

Would have that additional information, so there's a lot of other benefits that you get from that extended data that you don't, you know, you're otherwise having to research these outside the payment. Well, if that data is inside the payment now, your your systems are much more effective and, uh, ideally, you know, handle.

Doing fraud detection and and doing compliance more on a real time basis.

Joseph: Right, right, that's, I mean, uh, I, I, I do see that, I do get that, uh, and it, would you, would you, uh, would you agree that, um, it really is just formatting the data in a better way, a more usable way? I mean, it could be as simple as

Steve: it also I'm going to raise another technology, uh, you know, thing that this can really take advantage of it. If you [00:25:00] now are. Processing, uh, transactions using ISO 2022. And you have filled in additional data. This is where AI can really be helpful to, to give you that, that real time fraud detection to do, um, you know, some, uh, real time.

Compliance reporting or, or triggering or, you know, detecting and all that, um, doing it all in real time. I talked about that, uh, uh, walk in payments business. And when we went online, we did, we had to do a real time checks. we couldn't because the person's there standing, paying for the transaction right then and there, and we had to say, Hey, wait a minute.

No, we need, we need you to fill out a, you know, a a a C ct, not a CTR product. Well, CTR, if it was over $10,000, but an SAR, um, and a form would pop up and they had to type in that information. If they walked away. We, we kind of. Noted, uh, well, we didn't process the transaction, but we noted that this is something [00:26:00] suspicious.

And when they gave us the information, you obviously had to comply with, you know, submitting that to the appropriate authorities.

Joseph: Super interesting. I can't, I can't imagine the first day someone said, Oh, by the way, you have to do this compliance as well. You know that and everyone going, we have to what? Uh, amazing.

Steve: usually that's happening sometimes after the fact, somebody does a large transaction and now, you know, somebody in the compliance department of the, of the bank is saying, hey, here's a transaction we got to investigate. Well, if the data's already all there, that investigation could happen, some of it, you know, real time.

Joseph: Yeah. It is amazing

Steve: at least trigger it better, you know, for an automated workflow.

Joseph: It is an amazing time in payments. Um, I'm looking at my book. I'm going to pick my book up again. So, I spent many, many years listening to people talk about instant payments, talking about faster payments, uh, and it was sort of amazing to [00:27:00] see the, the core of what folks should know.

In this book, right? All those presentations, uh, are, are pretty much included in here. And I gotta tell you, your, your chapter, I, I, I generally knew about ISO. I, you know, when I was in those sessions where they started talking about the format of the PACS 08, I, I, you know, I glazed over a little. Your chapter, Uh, you know, what a good job.

It, it talks about where it came from, what are some of the pieces that are important to those payments, the PACs, the pain, um, without, again, without going into the fourth field on the second record is this data. It's like, um, Just, just, uh, phenomenal. How, how, you know, just from a curiosity perspective, how did you decide that was the way you were formatting it?

I mean, you even, I just noticed you have the card format here. That's why I asked the [00:28:00] 8583.

Steve: Well, I did a comparison between, you know, ISO 202, 8583 as well as. With against ACH. Um, so, you know, that that was relevant to people to know about it. They don't need to know the, the, the nitty gritty details of it that we leave the, you know, the engineers to do that type of work. We need to know functionally.

What can we do with it? And that's why it's, you know, it's meant for executives as well as people in product to be able to learn these things. Uh, in the banks and in the, uh, payment companies, uh, and fintechs and, and, and as well as the next generation of them, as I said, you know, for people in the, in the business schools, um, is that's the, that's the place that, uh, ISO 2022, they'll say, you know, That'll, that'll be the standard by the time, you know, they're, you know, they're fully engaged in, in, in, uh, in, in, you know, their, their, uh, their life history and so forth.

Joseph: Yeah, [00:29:00] I, I, I, I, I agree. Um, it's such a, things are so, I don't know. Maybe it's not moving so fast. Maybe I'm just old, but, uh, I didn't have a,

Steve: I am too,

Joseph: phone. Yeah. I didn't have a cell phone when I was in college. You know, with all this technology today, what's it going to be like in 10 years? Do you think, do you think this is, this is not in the script?

What do you think ACH will do with ISO 20022? Will it just, you know, make it able to send an ISO? Or will you, do you think there could be another ACH network?

Steve: well, I had a vision for, um, I didn't share this in any of the previous correspondence with you, but, uh, I called it anytime ACH and anytime ACH is being able to use the same format we use today. Um, and, uh, basically send it through an [00:30:00] API where I take a batch and I split it up by RDFI if I'm originating it, uh, and send out, uh, the batch of data specific to AV RDFI.

And then there's a net amount that that's. Corresponding to, and I turn around and use an FI to FI instant payment between the 2 organizations to settle that batch that I just sent to that between and R. D. F. I. It's all

Joseph: in 2000, that's, that's, I mean, I would think that's pretty impossible, but in 2024, not so impossible, right?

Steve: the rules.

Joseph: Yeah,

Steve: It's the technology is not holding it back.

Joseph: definitely not. Uh, and you know, we, it's hard to, sometimes I think if you're new to this, it's hard to get your head around it, but if you brought it down to what you just said, there's two parts to it. [00:31:00] There's a message and then there's settlement, right? And the message was, let's send them, you know, here's the ACH.

I want to send it anytime, API, hey, API, click, boom, done, paid.

Steve: Well, some of the big banks were been doing that for a long time just between themselves. But, you know, they didn't, they didn't have to, they weren't necessarily using, um, you know, APIs, but my, my design is to do that. And if you could use instant payments for the settlement, or we get to, uh, like a wholesale, uh, digital currency, uh, which is something else.

Um, I had another startup that I started a company called Vements, uh, that is a digital currency issued by banks. Uh, and, uh, uh, it's basically has an oversight entity like nacho or the Federal Reserve that sets the rules. Um, uh, as he has some, you know, sets the controls for usage, uh, enables, uh, bank accounts being attached to it or not.

So we can address even [00:32:00] an ecosystem that includes financially inclusive. People that I used to serve in, in the, in the walk in payments business and did a lot of prepaid equipment. So, uh, they could have accounts that could be. Less or even anonymous, if it was a gift card equipment, but then is limited to maybe 500 dollars.

That's it. And 1 time, whereas reloadable prepaid, uh, I forget the exact limit, but it'd be a couple of 1000 dollars, but you could reload it. And then you would, you know, try to, uh, then you had limits on the daily activity as well.

Joseph: Payments is, payments are so interesting, uh, given that we were off the, off the, off the script

Steve: Yeah, we got all

Joseph: Patents pending. This is, this is Steve's ideas. Don't, don't, don't hijack them. Um, uh, You know, this, I, I, I'm looking at our notes again and I don't think, something we've, we've, uh, haven't really touched on, which I think is [00:33:00] fascinating.

Uh, were you at the Berlin meeting? I don't recall. The Berlin Payments Alliance meeting? They, they talked about, uh, UPI in India and how their payments are working. Can you talk a little bit about, you know, how ISO 20022 affects maybe AI you touched on? Uh, QR codes? Does it help with embedded banking or open banking?

Uh, directories? Are directories going to help with all this?

Steve: well, that's the, you're talking, now you're starting to talk about another chapter I wrote about, uh, the, the, I called them, uh, instant payment rocket boosters. That's the title of that chapter. And it covers, uh, AI QR codes, directories. Which directory models group, we're working on a hackathon for that coming up soon for a, you know, what's going to, what's going to help instant payments is being able to have an alias directory to say, I want to send something, you know, just like we do with [00:34:00] PayPal, Venmo and Zelle.

We want to be able to do an instant payment with an alias as well. So, uh, directory is important. QR codes is a way maybe there's a link to that directory or QR codes can provide the alias or, or can provide the credentials itself. Um, you know, a directory kind of works hand in hand with that, but then we leverage AI to make sure everything is properly, uh, being vetted, uh, and, uh, all the information, um, Is accurate, uh, as well as, you know, triggering reminders and, and, and, or, or triggering AML, uh, alerts or other alerts, fraud detection and all that.

Um, that's where AI comes in, uh, you know, to all that. So I touched upon a few of those things. In that chapter in the book as well, and those are the things that will accelerate the adoption of instant payments. Um, You know, the, uh, I think one of some of the other things are holding back the adoption of payments and people [00:35:00] have said it's been kind of slow going.

Well, I had some notes saying that Rome wasn't built in a day. And, uh, even ACH and card took years, um, you know, to become widespread views. So we have to be patient. We have actually. I think we're on an accelerated rate compared to where those, uh, you know, started out 50 years ago. Um, and, uh, you know, I remember having my first credit card.

I'm a bit older than you. My first credit card. We didn't have Visa and MasterCard available. We had just Exxon Mobil and Macy's. And, you know, and, you know, we had either store specific cards. We had oil cards, and they were private. Private, you know, private things. You, you only use that at the, at those locations.

Um, and then they sent you a bill and you paid it. So then, you know, came along, you know, open, uh, card networks with the visa and mastercard at all the banks and the American express as well. [00:36:00] Uh, though I'm an American express holder since 1980. Uh, yeah, I love that. They, they liked me. That's a loyal long time.

Joseph: picture must be up in their office.

Steve: But, you know, some of the other reasons back where why was it taking so long here for instant payments to be adopted in the U. S. Is, uh, thanks. Banks have complicated systems and they have legacy systems. They're not easy to change and they can't rip and replace things. They have to find a way to kind of incrementally walk their way into it and be very careful and be risk averse because they can't afford the risk of anything failing.

So, you know, that's part of it. And, but they have the opportunity to plan to, uh, create new systems and new platforms that'll take them to the next generation of payments for the next hundred years. And that's the opportunity that then incorporated in ISO 2002 and some of these other technologies into this new [00:37:00] platform for the future.

And then, you know, I'll call V meds. Uh, I call it banking into the future. It's, it's planning, you know, uh, you know, those types of things all coming together, um, And digital currencies will be part of it too. That'll be the next type of instant payment is a digital currency payment, but not cryptocurrency.

I don't believe that crypto unregulated, uh, and even stable coins. This is where I said, VMS is kind of addresses that next level of banks doing their equivalent to it. The talk the, uh, in the industry, they call it now tokenized deposits. But, um, yeah, a lot of other things that, you know, affecting the, uh, um, no, the, the.

The adoption, uh, 1 of them is the economics that we don't yet have an economic model for instant payments in the US, like we do with the card networks. And obviously we need to come up with something different than interchange and and chargebacks, which we shouldn't have as many chargebacks or any chargebacks because it's only [00:38:00] credit push.

Joseph: Credit push?

Steve: You have authorized, unauthorized, uh, sorry, authorized push payments that we were either scammed into or, or there was account takeover. Uh, in that, you know, now there's a lot of focus on how do we control that? The feds done a wonderful job of its fraud classifier. Um, and now it has a scam classifier to go with it.

So those are you, those are resources that, uh, uh, you should definitely, uh, you know, take advantage of the book, at least talks about the, the fraud classifier a little bit. Um, the scam 5 classifier is kind of really new this, I think, weeks old actually. Uh, so those, those are things that

Joseph: before the scam classifier was done.

Steve: go ahead.

Joseph: Oh, no, you, uh, you published before the scam classifier was public. So, uh, the fraud classifier being included is, is, is excellent. Uh,

Steve: Yeah, those are invaluable tools. And FedNow [00:39:00] requires, if you do have some fraud reporting, you need to use their classifiers to structure things for more automated and AI enabled, um, real time capabilities.

Joseph: So we're, we're about at time. What would be, and thank you for, for appearing on this, um, I, I would, you know, you mentioned so many things, I, I kind of want to have you back again to talk a little bit more about them, but if you, if we're stick, sticking directly to the topic of learning more about ISO 20022, what advice would you give people and, you know, for faster payments, what advice would you give folks learning more about faster payments?

Steve: Well, first, you know, read the book, but then also get certified, uh, and then there's the accreditation test coming up, uh, in 2025. Become accredited faster payments professionals, uh, and, uh, start to, uh, you know, plan things in your [00:40:00] organizations to properly take advantage of the, of the standard, uh, we probably won't have here in the U.

S. What, uh, is started to happen in, in the, in the E. U. or U. K. where they're even mandating, um, uh, things like the structured address. Has to be broken up differently than we're normally used to having a more unstructured address, or the only structured parts of it were city, state and zip. Uh, that goes beyond their structure.

The structured address in ISO 2022 is even more structured than that and has more information. Uh, so, uh, these are things you need to, to plan for and prepare for, but it does, it does enable now more information, more use of AI, more. You know, more, uh, capabilities that we had before. That is the future of where payments are going to.

So, you know, that's, that's why it's, it's very important.

Joseph: Excellent. Excellent. Anything on faster? [00:41:00] Any, what's the next step anyone should learn about faster?

Steve: Well, we're starting to see, uh, uh, the ISO 2 to 2, uh, now starting for, uh, instant payments, you know, cross border, uh, and, you know, a lot of other hurdles involved in that. And it kind of, you know, does it involve the, uh, um, Um, The intermediaries, all the intermediaries it does, or can it, you know, can some of it be done even through blockchain?

So a lot of things going on in the industry, uh, to happen there and, and, you know, keep your ear to it because it's changing fast. That's the only thing, the things are going fast and you don't want to find yourself in the rear view mirror. Uh, and I, I used to say, you don't want to become that next blockbuster that goes out of business.

And, you know, um, especially the smaller banks have to worry about it, um, and to, uh, to be able to, to keep up with the demand of, you know, customers, their customers, they may not be talking about, uh, that why [00:42:00] aren't I getting instant payments from you? That's because they're using the alternatives. They're using PayPal and Venmo, and maybe they're using Zelda.

And if you're not offering, they're using it on some other platform. You know, your money's going elsewhere. So, we'll, you know, we'll, how long are those deposits going to stay with those, with those banks? Um, they need to get with it, um, because they'll find themselves that next blockbuster.

Joseph: Yeah. It's, you know, that's, it's, I learned that along the way that, you know, well, our customer is not asking for it. Our customer is not asking for it until they are. And then it's, you know, you're, you're six months behind a year behind in an implementation.

Steve: They gotta get in front of it.

Joseph: Yeah.

Steve: Got to get in front of it and, and, oh, that was another thing. The book talks about, it's all about the use cases. Okay. So, when you do instant payments, well, what am I doing it for? All right. So, you got to find a use case that it's specific to. So, what are some of the typical use cases?

I mean, the number 1 that comes out [00:43:00] and somebody turns on instant payments, they find that their money's coming to them from these digital wallets that they're doing other payments with. It's like, duh, that's where your money's, you know, money's flowing. Um, but, you know, there's earned wage payouts, you know, immediate payment.

Um, there's, you know, getting your loan funds immediately, uh, paying that bill that's the last minute due to get it in on time. Before you get shut off, or you get late fees or paying that credit card bill, you know, before you get those late fees and interest charges and get yourself in the hole. That's a very deep hole to dig out of.

So, these use cases, this goes back to the economics. Don't assume that every use case has to have the same economics. The use case. Value of having an instant payment could could dictate the [00:44:00] fees that you may charge or collect. Um, and, you know, people are willing to pay that if it's going to otherwise cause them pain or to get their money faster.

They're willing to pay for that. Um, and so, uh, you know, what do we do with the in the U. S. You have everybody likes to use their cards because they get. I'm a points junkie myself. I like to use everything and pay everything on points. I get my Hilton points, my, my Marriott, my, my airline points, you know, and I use all that.

And, uh, I have an alternate currency to use when I want to pay for those things. Um, And, you know, the, uh, what the merchants need to do is provide incentives. If they want to receive the money faster, they have to provide incentives. And to me, the best incentive they can provide is something that brings the customer back to the store is like, I'm going to give you now 30 percent off, whatever, when you come back in the store next time, maybe that's [00:45:00] an exception, you know, maybe that that's a bit much, it's a lot more than your interchange, but however, when you get that customer back in store, that loyalty.

Is invaluable getting them to come back my favorite example. Um, my wife gets cold cash. All right,

Joseph: cash?

Steve: calls pulls is like a target, you know, or just for clothing and so and well, actually, it has a lot of things that calls and she, um, uh. She would have that 10 and she would go back. And before I knew it, she spent up 50 or a hundred dollars.

Uh, uh, and then they give her another 10 to come back. They keep going back

Joseph: Genius. Genius. Um,

Steve: instant payments the way you get those, uh, you know, merchant specific loyalty to come back and spend more.

Joseph: I definitely have to, we, uh, you know, I just wrote down our point payments, but, uh, definitely have to have you come back and, uh, talk about this, uh, at another time. Maybe, uh, maybe we'll do a roadshow [00:46:00] with, uh, with the other authors. Yeah. Yes.

Steve: and what they, they, they wrote. So Reid Lieutenant wrote the chapter on social, societal, economic and philosophical implications. A really great chapter. That's the one that leads out the book. Uh, Travis Dulaney wrote about implementation strategies and approach FinTechs. Elspeth Bloodgood wrote Risk, Fraud, and Compliance. Uh, I told you the chapters I wrote. Kevin Olson wrote about, uh, use cases, uh, as did, um, Or 1 of all the colleagues, uh, from city, national bank wrote another chapter about use cases and, um, Connie theme. Uh, uh, and and Peter Davey, uh, both wrote about the history of a payments where Peter had that history from the clearing house.

Connie had it from the Federal Reserve and fed now. [00:47:00] And, uh, we had a great cast. Uh, the cover, all those, uh, uh, areas, it was a great experience working with all of them to, uh, to come up with this book and appreciate it. Thanks.

Joseph: and just just uh, just from the cover, I don't want to I I've probably been left out before Sean Rodriguez, I think he did the introduction

Steve: Oh, he did. He did the, uh, the preface. Um, uh, and yeah, he was, he was there from the beginning of Instant Payments, uh, initiative for, for the Federal Reserve, uh, and Connie was there, uh, kind of along with him as well, but they're both retired now. They were only able to participate once they retired in, in, in the, in the, in the book, but, um, a great, great experience and great, great people involved, uh, uh, and hopefully I

Joseph: one one more name. I have Michael Young

Steve: Michael Young, uh, uh, he, uh, is the CEO and founder of Photon Commerce, who I, uh, [00:48:00] I work for, and, um, I, uh, helped get the book done under, uh, uh, it being funded by, uh, by Michael and Photon, um, and he helped review some of the content as well, um, but he's the one who helped make it happen.

Joseph: Yep. I want to thank them all that they you know, I I know many of them all you know, all good people You know people you'd like to hang around with uh I don't know how you think of authors, but all good people. Thank you for joining. We're going to

Steve: perhaps I'll see many of you, uh, the Faster Payments Council meeting in Denver coming up this next week. Look forward to it. Have a great

Joseph: very much.

Steve: All right. Thanks.